You should avoid taking money out of your IRA or 401(k) plan and instead roll it over to another IRA or other retirement account.

Withdrawals are generally taxable and, if you are under age 59 and 1/2, you could be subject to an additional 10 percent penalty.

TurboTax online points out that if you have taken out a 401(k) loan and then lose your job, you must normally repay the loan within 60 days. If not, the balance of the loan could be considered an early distribution subject to tax and the 10 percent penalty.

If the loan isn't repaid, you should receive a Form 1099-R, which would list the amount of the early withdrawal (Box 1) and how much of that amount is taxable income (Box 2a).

No. 1: Potential tax benefits

It takes a glass-half-full view of things, but not all of the tax impacts of losing your job are negative.

For instance, you may be able to claim the earned income credit if you have a lower level of income after losing your job.

If you pay someone to take care of your children or other dependents while you look for work, you can claim the tax credit for child and dependent care expenses, which can be up to 35 percent of your expenses.

If you itemize, and take courses to update or improve your skills, or decide to go back to school, there are tax credits for education expenses.

If you have to move in order to take another job or start your own business, you can deduct moving expenses without having to itemize. Make sure to keep all necessary receipts to claim these benefits.

Distributed by Internet Broadcasting. This material may not be published, broadcast, rewritten or redistributed.

Comments

The views expressed are not those of this company or its affiliated companies. Please note by clicking on "Post" you acknowledge that you have read the TERMS OF USE and the comment you are posting is in compliance with such terms. Your comments may be used on air. Be polite. Inappropriate posts may be removed by the moderator. Desktop and mobile versions of this site use independent comment threads.